Question

The following information pertains to inventory of Hawk, Inc. during 2019. Cost Retail

Inventory 1/1/2019 $30,000 $60,000

Net markups 40,000

Net markdowns (20,000)

Purchases 400,000 960,000

  Purchase return & allowance (30,000) (60,000)

Freight-in 10,000

Abnormal Spoilage (20,000) (40,000)

Sales    (600,000)

Instructions: Compute COGS for 2019 using 1) the conventional average retail method and 2) LIFO retail method.

Answer 1

Hawk, Inc.
1.Conventional average retail Method:
Ratio = (30,000 + 400,000 – 30,000 +10,000 -20,000) /(60,000 + 960,000 -60,000 -40,000 + 40,000)
= 390,000/960,000 =.406 = 40.6%
COGS = 600,000 * .406 = $243,600
2. LIFO retail M.
Ratio for B/I = 30,000/60,000 = .5 = 50%
Ratio for purchase = ( 400,000 – 30,000 +10,000 -20,000) /( 960,000 -60,000 -40,000 + 40,000)
	=	360000 / 900000
	=	40.00%
COGS = 600,000 * .40 = 240,000